PARIS — Satellite and rocket-component builder OHB SE of Germany on May 10 said the decline in its backlog reported in the first quarter of this year is about to reverse sharply with some $600 million in new orders in the coming weeks.
OHB and its payload-building partner, Surrey Satellite Technology Ltd. (SSTL) of Britain, have been notified they have won a European Commission order for eight more Galileo positioning, navigation and timing satellites.
The notification came April 27. Attached to it was a “standstill” requirement of 10 days to give the losing bidders, Airbus Defence and Space and Thales Alenia Space, time to mount a protest.
No protest is expected. The OHB-SSTL team has already won two Galileo satellite manufacturing awards for a total of 22 satellites. As the incumbent bidder, they had a presumed cost advantage given that the most recent order was for spacecraft that are nearly identical to the ones already built.
In a conference call with investors, OHB Chief Executive Marco R. Fuchs and Finance Director Kurt Melching said the firm Galileo contract likely would take several weeks before it was signed.
Galileo award resembles previous one, plus 20% downpayment
They declined to provide contract details but said the economics and profitability of the latest order would be similar to the previous award, also of eight Galileo satellites, that was signed in early 2012.
That contract was valued at 255 million euros, or $278 million at today’s exchange rates.
The principal difference in the latest win is that OHB will receive a 20 percent downpayment once the contract is signed.
The eight-satellite contract was originally scheduled to be concluded in December. But European Commission and European Space Agency officials spent months debating the merits of a single-source contract versus a contract that awarded at least satellites to a second prime contractor. Thales Alenia Space was the finalist for the work after Airbus had been eliminated, industry officials said.
Dual sourcing not really dual in Europe
The U.S. Air Force has made a habit of alternating its GPS contract awards between Boeing and Lockheed Martin as a way of maintaining a competitive tension with each new GPS generation.
ESA and the European Commission wanted to do that as well. But ultimately they concluded that since the vast majority of the work would be performed by the same subcontractor supply chain no matter which company won the prime contract, a dual-source policy would have no real effect other than slowing down the satellites’ delivery.
“If the supply chain is working on behalf of two contractors asking for the same work at the same time, it could introduce delays in the delivery of the hardware in addition to possibly increasing costs,” one European government official involved in the decision said.
As it is, the Galileo order is arriving too late to take maximum recurring-production benefit from the OHB-SSTL production lines. These lines have been shut down for several months now.
Fuchs said the need to restart the production facility in mid-2017 will carry a cost, but not much of one. He said the company’s Galileo veterans have been temporarily assigned to other work at OHB and could be easily returned to the Galileo project.
European Commission officials have stressed they want full Galileo service to start in 2020. Initial services were inaugurated last December.
The commission had considered ordering 12 satellites, with a possible four-satellite order going to Thales Alenia Space, but in the end decided to limit the award to eight spacecraft.
Corrective measures for atomic clocks
Fuchs said that while the Galileo satellites at OHB under the previous order were yet to be delivered, they are undergoing “corrective measures” to prevent a recurrence of the failures of several atomic clocks on the satellites in orbit.
Part of the remedial measures to be taken includes operating the clocks in orbit in a slightly different way, European government officials said. But there is also remedial work being done to assure that the clocks can function in a wider operating regime.
A long wait for Heinrich Hertz
OHB’s second contract expected sometime in June is for the long-anticipated Heinrich Hertz telecommunications satellite, to be financed by the German Aerospace Agency, DLR, which will mount telecommunications research payloads; and by the German Defense Ministry.
The project, whose satellite prime contract carries an estimated value of 300 million euros, has been approved by the two agencies and now must clear a final review by the German Bundestag, or parliament.
“We have been talking about Heinrich Hertz for three years or so,” Fuchs said. “I can report that negotiations have been completed. We are confident that a contract of roughly 300 million euros will be signed in the coming weeks — within this quarter.”
For the three months ending March 31, OHB reported total revenue of 165.3 million euros, up 5 percent from the same period a year ago. Earnings before interest and taxes was 5.7% of revenue, compared to a 5% margin a year ago.
OHB, whose fast growth in recent years has been blamed for delivery-schedule hiccups, notably on Galileo, has now stabilized its work force, which stood at 2,309 as of March 31, compared to 2,298 as of Dec. 31.